Health Management Associates has emerged victorious in a fierce bidding contest for a small hospital in rural Virginia, beating out two other for-profit bidders and one not-for-profit system in a bankruptcy auction.
HMA's $22 million court-approved purchase of 80-bed Lee County Community Hospital, Pennington Gap, Va., is the latest in a series of forays that for-profit hospital chains have made to bankruptcy courts recently to pick up hospitals.
The April 18 hearing in U.S. Bankruptcy Court in Big Stone Gap, Va., lasted until nearly 11 p.m., when the court approved HMA's bid. The deal could signal a happy ending to a distasteful chapter in the hospital's history that included the criminal convictions of four people involved in the hospital's operations; former Administrator James Luther Davis pleaded guilty to racketeering and conspiracy charges in July 2000. All four received federal prison terms for their roles in a fraud scheme that ultimately contributed to the hospital's filing last year for Chapter 11 bankruptcy protection.
"I'm really excited to see that this hospital gets back to its glorious days with this capital infusion," said G.K.U. Kumar, the hospital's chief executive officer.
The hospital lost more than $7 million during the past two fiscal years. For the year ended July 31, 2000, it lost $2.2 million on revenue of $20.2 million; so far this year, it is posting a small profit, Kumar said.
HMA, based in Naples, Fla., agreed to pay $18.4 million in cash, and will assume leases worth $1 million, administrative claims of $727,000 and employee benefit obligations of $2.1 million, Kumar said. The transaction is expected to close within 45 days.
Attempts to reach an HMA spokesman were unsuccessful.
The initial bidder for the hospital was Mountain States Health Alliance, a six-hospital, not-for-profit system based in Johnson City, Tenn., that offered to structure a partnership with the community in which it would have held a 40% interest. HMA's final offer came in at about $10 million above that original bid, Kumar said.
"Though at first the community wanted a not-for-profit hospital, given all the circumstances and the need for the infusion of capital, this was the best choice," he said.
Community Health Systems and Province Healthcare Co., two other rural for-profit chains, both in Brentwood, Tenn., appeared in bankruptcy court to bid. Province dropped out at a bid of $18.96 million, Kumar said.
Roy Terry Jr., counsel to the official committee of unsecured creditors, said his clients are likely to recover 100% of their claims, possibly with interest, which is rare, he said.